Johannesburg, 18 Dec 2014 — Global Credit Ratings has today assigned a national scale financial strength rating to UAP Life Assurance Limited of BBB+(KE); with the outlook accorded as Stable. The rating is valid until September 2015.
SUMMARY RATING RATIONALE
Global Credit Ratings (“GCR”) has accorded the above credit rating to UAP Life Assurance Limited (“UAP Life”) based on the following key criteria:
UAP Life has rapidly increased its market share over the review period, and is expected to further entrench its position in the mid-tier market in the short to medium term. In this regard, note is taken of the insurer’s strong brand and track record of strategic execution to date.
Operating profitability has stabilised over the past two years, on the back of improved critical mass. However, the insurer remains susceptible to new business strain, with effective cost containment viewed to be critical in order to maintain profitability going forward. In this regard, considering the high degree of competition in the market and the insurer’s limited track record, UAP Life’s ability to sustain growth and profitability will represent a key rating consideration going forward.
Capital accumulation has been underpinned by funding from the shareholder and conservative earnings retention. Accordingly, the insurer has maintained adequate solvency metrics over the past two years, with statutory coverage registering at 2x at FYE13. This is considered to be the minimum prudent level by GCR, given the company’s life cycle stage and growth trajectory.
UAP Life’s balance sheet structure is considered to be strong, with the large investment portfolio supporting sound liquidity and asset-liability coverage measures. However, the actuaries indicated that there is a potential asset liability mismatch from a duration and yield perspective.
Going forward, enhanced scale and diversification and a longer track record of operating profitability could translate into a strengthening in the rating. This would need to be achieved whilst maintaining capital adequacy and liquidity measures at currently adequate levels. In contrast, a deterioration in the company’s key capital adequacy and/or reserving measures, or a sustained weakening in operating profitability, could have a negative rating impact.
NATIONAL SCALE RATINGS HISTORY
Initial / last rating (Dec/2014)
Financial strength: BBB+(KE)
Sector Head: Insurance
APPLICABLE METHODOLOGIES AND RELATED RESEARCH
Criteria for Rating Life Assurance Companies (Updated July 2014)
RATING LIMITATIONS AND DISCLAIMERS
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GLOSSARY OF TERMS/ACRONYMS USED IN THIS DOCUMENT AS PER GCR’S INSURANCE GLOSSARY
|Actuarial||Having to do with insurance mathematics.|
|Assets||The items on the balance sheet of the insurer which show the book value of property owned.|
|Assurance||Terminology used to describe life insurance.|
|Balance Sheet||An accounting term which refers to a listing of the assets, liabilities, and surplus of a company or individual as of a specific date.|
|Bond||A certificate issued by a government or corporation as evidence of a debt.|
|Capacity||The largest amount of insurance or reinsurance available from a company.|
|Claim||A request for payment of a loss, which may come under the terms of an insurance contract.|
|Commission||A certain percentage of premiums produced that is received or paid out as compensation by an insurer to agents and brokers.|
|Coverage||The scope of the protection provided under a contract of insurance.|
|Insurance||A formal social device for reducing risk by transferring the risks of several individual entities to an insurer.|
|Insured||A person or organisation covered by an insurance policy, including the “named insured” and any other parties for whom protection is provided under the policy terms.|
|Insurer||The party to the insurance contract whom promises to pay losses or benefits.|
|Interest||Money paid for the use of money.|
|Liquidity||The ability of an insurer to convert its assets into cash to pay claims if necessary.|
|Loss||The happening of the event for which insurance pays.|
|Policy||The legal document issued by the company to the policyholder, which outlines the conditions and terms of the insurance also called the policy contract or the contract.|
|Policyholder||(1) The person in actual possession of an insurance policy.|
|Portfolio||All of the insurer’s in-force policies and outstanding losses, with respect to described segments of its business. Also, the total securities owned by an insurer.|
|Provision||A part (clause, sentence, paragraph, etc.) of an insurance contract that describes or explains a feature, benefit, condition, requirement, etc. of the insurance protection afforded by the contract.|
|Rate||The pricing factor upon which the insurance buyer’s premium is based.|
|Rating||The statistical process by which insurers determine risks and pricing for the basic classes of insurance.|
|Reinsurance||The practice whereby one party, called the Reinsurer, in consideration of a premium paid to him agrees to indemnify another party, called the Reinsured, for part or all of the liability assumed by the latter party under a policy or policies of insurance, which it has issued.|
|Retention||The net amount of risk the ceding company keeps for its own account|
|Risk||Uncertainty as to the outcome of an event when two or more possibilities exist.|
|Securities||Evidences of a debt or of ownership, such as stocks, bonds, and checks.|
|Solvency||With regard to insurers, having sufficient assets (capital, surplus, reserves) and being able to satisfy financial requirements (investments, annual reports, examinations) to be eligible to transact insurance business and meet liabilities.|
|Statutory||Required by or having to do with law or statute.|
|Surplus||The excess of assets over liabilities.|
|Valuation||Estimation of the value of an item, usually by appraisal.|
SALIENT FEATURES OF ACCORDED RATINGS
GCR affirms that a.) no part of the rating was influenced by any other business activities of the credit rating agency; b.) the rating was based solely on the merits of the rated entity, security or financial instrument being rated; c.) such rating was an independent evaluation of the risks and merits of the rated entity, security or financial instrument.
UAP Life Assurance Limited participated in the rating process via face-to-face management meetings, teleconferences and other written correspondence. Furthermore, the quality of information received was considered adequate and has been independently verified where possible.
The credit rating has been disclosed to UAP Life Assurance Limited with no contestation of the rating.
The information received from UAP Life Assurance Limited and other reliable third parties to accord the credit rating included the latest available audited annual financial statements to December 2013 (plus four years of comparative numbers), full year budgeted financial statements to December 2014, most recent year to date management accounts to September 2014, a summary of the current year reinsurance cover notes, the actuarial valuation statement as at December 2013 and other relevant documents.
The ratings above were solicited by, or on behalf of, the rated client, and therefore, GCR has been compensated for the provision of the ratings.
GCR accords an initial rating of BBB+(KE) to UAP Life Assurance Limited; Outlook Stable.